1. Field of the Invention
The present disclosure generally relates to automated credit decisioning and portfolio management. In particular, the present disclosure relates to managing and analyzing portfolios of accounts to help companies reduce bad debt, decrease operational expenses, and increase cash flow.
2. Background of the Invention
Chief financial officers (CFOs), treasurers, and controllers need to increase revenues, while minimizing overall risk, including credit risk. They need to improve cash flow (order-to-cash cycle), reduce operational expenses (do more with existing resources), and improve the efficiency and productivity of credit systems (faster turnaround time on accounts and orders). Also, they need to reduce bad debts and have better reporting. According to the Financial Executive International October 2002 Survey of Senior Finance Executives, most financial executives want more than just operational support from credit functions and accounts approved in less than one day. They are concerned about credit management staff failing to see the big picture, system shortcomings, a lack of a centralized data repository, and lack of time prohibiting prioritization. They want enhanced reporting, less administration, and exception-only analysis.
Credit managers determine and extend appropriate credit terms, assess credit worthiness, find and use appropriate, accurate, and reliable data, manage bad debt, reduce days sales outstanding (DSO), and justify decisions. The Credit Research Foundation Fourth Quarter 2002 Survey of Credit Manager Challenges revealed credit mangers want to improve DSO, improve overall portfolio management, do more with existing resources, reduce bad debt, and have faster turnaround times on accounts and orders.
There is a need to increase operating cash flow through a reduction in delinquency rates, increase profitability through reduction in bad debt write-downs, and increase operating margins through operational expense reductions. There is a need to decrease total risk exposure, charge-offs, problem accounts, and operational expenses for credit and collections. There is a need to increase utilization of existing information systems and assets. There is a need to decrease infrastructure costs. There is a need for consistency in risk analysis.
According to Bankruptcy Data Communications, there were 176 public company bankruptcy filings in 2000, 257 in 2001, and 191 in 2002. Five of the ten largest bankruptcies in history occurred in 2002. Capital tied up in DSO is over 50% greater than most companies have available in cash and short-term investments. This is $440 billion for the S&P industrials and if the average S&P Co. reduced DSO by 1 day, it would free up $31 million, according to Monitor Group, September 2002.